Two weeks before the U.S. Supreme Court heard arguments against President Obama’s health care law, Democrat Oregon Gov. John Kitzhaber approved the business plan for the Oregon health insurance exchange, making a political gamble the law will survive its day in court.

Kitzhaber’s challenge indicates the risk facing governors across the country. Although he remains publicly committed to implementation of Obama’s law, his administration runs the risk of unnecessarily spending millions of taxpayer dollars and creating upheaval in the state’s insurance market for a law which may soon be struck down.

Kitzhaber signed House Bill 4164, which requires the state move forward on creating a health insurance exchange. The exchange is being advertised as a central marketplace where consumers and small employers can shop for health insurance plans and receive taxpayer subsidies for coverage. Obama’s law requires all states to have either a state or federal exchange in place by Jan. 1, 2014.

‘Proceeding Full Steam Ahead’

Rocky King, executive director of the Oregon Health Insurance Exchange, acknowledged the exchange’s future will likely depend on whether Obama’s law survives the court challenge—and its demise could undermine their plans. King admitted if Obama’s law is over turned in its entirety, the Oregon Health Insurance Exchange would be in jeopardy. But that hasn’t stopped the Kitzhaber administration from sticking to their favored course.

“We’re proceeding full steam ahead as if it’s a go,” King said in an interview with Oregon Public Broadcasting on March 30, 2012. “Oregon has talked about having an exchange for more than ten years, so this is something we’ve been talking about with stakeholders for a long time.”

But King acknowledged the state cannot afford the reforms it is planning without federal funds.

“One of the things that the federal law provided was federal development and operation subsidies, and significant federal subsidies through the exchange,” King said. “In the absence of those federal dollars, given the economic environment in Oregon, it would be very difficult to move forward.”

State Already Spending Funds

King says the Oregon Health Authority has already spent nearly $49 million of federal taxpayer funding, through an Early Innovator Grant, to set up their exchange. This money has primarily gone to technology infrastructure.

In addition, Oregon received another taxpayer funded grant for $1 million a year ago, and another for $8.7 million last August, to develop business aspects of the exchange. The state is also putting in a request for a federal grant to cover the remaining development costs through Jan. 1, 2014 and the first year of operating costs.

King said the time frame makes it very difficult to meet the challenge of setting up an exchange, but because the funds are already available, the state won’t wait around for two or three months to see what the Supreme Court does before spending the taxpayer money.

Court Decides Who Pays

Eric Fruits, president of Economics International Corp., an Oregon-based consulting firm, says Oregon is going ahead with its exchange no matter what happens to ObamaCare. The Supreme Court case will just decide who pays for it.

“Oregonians have been very excited about having an exchange for a number of years now. Even if ObamaCare gets shot down, Oregonians still want an exchange. However, they’re hoping the money keeps coming from the feds. They think federal money is free money—except that it is not,” said Fruits.

“Without federal money, they would be looking at a substantial payroll tax to fund the plan, but I don’t think there would be enough support for this, especially since they already played that game with the insurance provider tax and hospital tax to fund CHIP,” Fruits explained.

Could Become Unfunded Mandate

According to Dr. Roger Stark, a physician and health care policy analyst at the Washington Policy Center, if the individual mandate is repealed but the rest of the law stays intact, states will still be required to set up a health insurance exchange.

“The issue, as always, is the money. The feds are now giving states ‘grants’ to help set up the exchanges. If the federal law is repealed, you have to wonder where the cash-strapped states will find the money to run the exchanges,” said Stark.

According to Stark, without repeal, states may face even greater fiscal challenges than how to pay for an exchange. He noted the decreasing provider reimbursement under Obama’s law will only serve to squeeze access to care.

“Over half the funding for ObamaCare comes from an additional $580 billion cut to providers. State legislators have some flexibility when it comes to Medicaid reimbursements, but they just don't have the money to meet the level of demand we’ll see under ObamaCare,” Stark said.

Do Exchanges Even Work?

Stark says there is no evidence exchanges will save money.

“Exchanges are essentially duplications of private brokerages, Medicaid programs, and whatever basic health plans states now have in place,” said Stark.

Devon Herrick, a senior fellow for the National Center for Policy Analysis, says a decision striking down the mandate will render the exchanges unworkable.

“There is nothing inherently wrong with the idea. However, the overregulated exchanges required under Obama’s law will not survive without generous subsidies and cannot survive if the individual mandate is overturned by the Supreme Court,” said Herrick.